The Wage-Earner’s Case for the Minimum Wage

Feb. 21 (Bloomberg) -- Even a conservative who ordinarily
doesn’t care much for government regulation of business ought to
find the case for a government-mandated minimum wage pretty
compelling. In brief: As a conservative, you believe in the
dignity of work. And it sends a terrible message about the
dignity of work when working full-time doesn’t earn you enough
to live a decent life.

On the other hand, even a committed liberal who’s concerned
about growing income inequality ought to have some doubts about
the minimum wage. The minimum wage reduces employment (or
“destroys jobs,” as the accusation is usually put) by pricing
people out of the market.

When two people (let us call them “worker” and “boss”)
voluntarily make a deal, we can presume it must be good for both
of them. Otherwise, they wouldn’t do it. This logic applies to
employment deals just like any others. No one is forced to take
any job, so when someone does take a job, we may surmise that he
or she finds this job, at the pay being offered, preferable to
other available jobs -- or to no job at all. By what right and
what logic do we step in and say: No, this is a deal you’re not
allowed to make?

No Help

You may say that when an unemployed worker with a family to
support takes a nasty job at a low wage out of desperation, this
is hardly the kind of voluntary free-market decision
contemplated by Adam Smith. But unless you’re offering a better
job or a better wage, simply forbidding this particular deal is
of less than no help. The minimum wage restricts workers as well
as bosses: It forbids both categories of economic actor from
making a deal they wish to make.

The current federal minimum wage is $7.25 an hour, a figure
that reflects our ambivalence about the whole idea. A wage of
$7.25 an hour amounts to $15,080 a year. At this rate, we’re
violating the principle of free markets by having a minimum wage
of any level. But $15,080 isn’t enough for anyone -- let alone
any family -- to live on with dignity.

President Barack Obama proposes to raise the minimum wage
to $9 an hour from $7.25 an hour. Economics tells us that this
will destroy jobs. Anyone whose hourly work is worth more than
$7.25 but less than $9 will become unemployable. What kind of
favor is this to them?

Critics of the minimum wage like to say that it slices the
bottom off the ladder of success. You might be able to work your
economic value up from nothing to five bucks an hour to $9 an
hour or (we may hope) even more. (Nine dollars an hour is still
only $18,720 a year. Good luck.) But if you can’t even start the
great game of life until you’re worth $9 an hour, the challenge
is greater.

There are studies suggesting that the minimum wage doesn’t
really destroy jobs. These get hauled out whenever an increase
in the minimum wage is contemplated. They are hard to believe.
In fact, I don’t believe them. The conclusion is just too
counterintuitive and too convenient.

Critics of the minimum wage think this is the end of the
story. To them, the minimum wage is just an anachronism from the
New Deal, a sop to people who don’t believe or don’t understand
the basic principles of economics.

Yet many government policies violate basic principles of
economics and therefore reduce our prosperity. A perfectly
legitimate answer to this objection is, “So what?” A prosperous
society such as the U.S. can afford to give up some prosperity
in exchange for more equality or some other social goal.

No Thanks

If we were to ask people who actually do work at the
minimum wage whether they would like to see it abolished, most
undoubtedly would say, “No, thank you.” Is this because they
don’t know economics? Because they don’t realize how the minimum
wage could take away their jobs? Because they’re crazy or duped
by left-wingers who love red tape and hate America and want to
see our economy strangled?

Not necessarily. Minimum-wage workers might quite
reasonably think: “This is a gamble. But it’s a gamble worth
taking. Maybe I’ll end up without a job, but maybe I’ll end up
with a raise of $1.75 an hour.” That doesn’t sound like much of
a raise, but it’s 24 percent.

You can’t know for sure in advance which effect the
minimum-wage increase will have on any particular person: A
raise? Or unemployment? But it’s far from irrational for
minimum-wage workers to conclude at some point that the risk of
losing their jobs is worth taking in exchange for the certainty
of a raise. It depends on the size of the risk and the size of
the raise.

Of course, it’s possible that a policy such as the minimum
wage might be bad for society even if it’s good for the
individuals most closely affected by it. So you go and tell
someone making $7.25 or even a whopping $9 an hour that you want
to eliminate the minimum wage for his or her own good. I’m not
going to.

(Michael Kinsley is a Bloomberg View columnist. The
opinions expressed are his own.)

To contact the writer of this article:
Michael Kinsley at mkinsley@bloomberg.net or @michaelkinsley on
Twitter.